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Mortgage Lenders 101
Mortgage Lenders – Who are they?
Do you sometimes get confused between mortgage lenders and mortgage brokers? Did you know that they are not the same thing? A mortgage lender is the actual lender and can be a bank, building society or other second tier lender of which there are many. A mortgage broker is someone who works on your behalf to obtain a loan from a lender.
Why do we have so many different types of mortgage lenders? There are several reasons for this, one being that they obtain their money from different sources. For example, it is well known that banks and building societies obtain deposits from customers whether those customers be your average mum and dad or a large corporation. They have other sources also, but that is usually the main source. Other second tier lenders obtain them from various funds, the main one being superannuation funds. These second tier lenders do not usually offer shop front facilities to enable you to make payments or withdrawals over the counter like the banks do. Most of their transactions are carried out through the internet.
Another reason we have so many lenders is that they service different requirements in the market place. For example, you have lenders that prefer to lend out on residential property while others are more favourable to commercial lending. Also, within each market you will find there is a wide variety of terms on which they are willing to lend.
LVRs – Demystifying the Acronym
Let's look at one of the most important considerations to a borrower. A borrower wants to know how much the lender is willing to lend. The majority of people want the most that the mortgage lender will let them have. Therefore, it is very important for them to determine the LVR of each lender they might be considering. The LVR means the loan-to-value ratio. This varies from one mortgage lender to another and also varies according to whether you are applying for a 'full-doc.' or 'low-doc.' loan. Full doc. loans are those where the borrower provides all details of their financial position, copies of bank and credit card statements for six months, pay slips and two years of tax returns. A low doc. loan is used mainly by self-employed people who do not have a regular income. These borrowers cannot provide pay slips and are not required to provide income tax returns. However, they do have to provide copies of their bank and credit card statements for the last six months and sign a declaration that their income is of a certain amount. The LVR for low doc. loans is substantially less than that for full doc. loans.
Who does a Mortgage Broker Work for?
Did you know that when you engage a mortgage broker he or she is engaged to act on your behalf? A mortgage broker is someone who acts independently of the mortgage lenders, being self employed or engaged by a broking company. However, the term 'mortgage broker' can be confusing because the banks sometimes refer to their loan officers as mortgage brokers. In this case the broker does not work independently and they are not working for you but for the bank.
The task of a mortgage broker is to source the best loan for you from the various mortgage lenders on their books. They often advertise the fact that they use up to 30 or 50 lenders and so you can be sure they will find the very best deal for you amongst all these mortgage lenders. However, the reality is that most work very closely with just a few lenders. Usually this is because the terms offered by these mortgage lenders are very good and the broker has developed a good working relationship with them.
Advantages of using a Mortgage Broker
Apart from being obliged to work on your behalf and source a loan with good terms for you there are other advantages in using a mortgage broker. They will guide you through the process as it can be quite daunting. They will assist you in filling out the many forms and they do not charge you for their services because they are paid by the mortgage companies.
If you intend to purchase several properties then you should develop a good relationship with a broker. They will be familiar with all your circumstances, the types of loans you prefer and the value of various properties you own. With this information they will be able to quickly find the right products for you.
Home Improvement Loan – Where Should you Start?
Do you wish to obtain a loan to do home improvements but you are not sure how to start? The lending industry offers many different types of loan products but does not have a specific product known as a home improvement loan. If you require funds to enable you to carry out home improvements you can obtain the funds by several different means. For example, if you have a redraw facility on your home loan that is adequate for your needs, then you could use this as your home improvement loan. Alternatively, you could go back to your mortgage lender and ask them to raise the amount of the loan to cover your home improvements. If you have occupied the property for several years it has probably gone up in value so there is some untouched equity you could draw on. In this case the extra funds could become your home improvement loan.
